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TMI Blog2016 (8) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the lower appellate findings under challenge. Oil and petrol expenses disallowance - Held that:- Assessing Officer invoked the impugned disallowance @ 20% of the gross claim on estimation basis only. The CIT(A) deletes the same quoting Assessing Officer’s failure in pin pointing specific defects in assessee’s claim. There is no dispute that the assessing authority has already accepted 80% of the claim sum by not raising any issue therein. We conclude in these facts that the CIT(A) has rightly decided this issue in assessee’s favour. Seeks revival of PF and ESIC contributions disallowances - Held that:- Their lordships in a latter decision (2014 (1) TMI 502 - GUJARAT HIGH COURT) in case of Gujarat State Road Transport Corporation uphold an identical disallowance pertaining to employees contributions to PF/ESIC. We draw support therefrom to direct the Assessing Officer for framing a fresh computation accordingly qua employee’s contributions in question. We come to employers contribution disallowance issue to notice that their lordships in assessee’s own case [2014 (3) TMI 1120 - GUJARAT HIGH COURT] reject Revenue’s identical argument. There is no distinction in the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al highlighting the impugned scrap to have been generated from export activities. He does not point out any exception to earlier assessment year’s facts vis-a-vis those of the impugned assessment year. Nor is there any finding at AO’s behest that the impugned scrap is in respect of the goods in which the assessee is not dealing with. We find no reason to deviate from our earlier order. This Revenue’s argument is rejected. We partly accept the Revenue’s arguments on this substantive ground qua section 80HHC deduction issue involving four components of interest, foreign exchange gains, provisions written back and scrap sale; for statistical purposes as indicated in preceding paragraphs. Transfer pricing adjustment - Comparable controlled transaction - Held that:- CIT(A) who has proceeded on revenue neutral implication without even taking into section 92(1) r.w.s. 92C and 92C(4) proviso along with rules discussed hereinabove at length. There is hardly any dispute that this chapter and the rules notified thereunder prescribe that an arms length price is not the price an assessee is charging or paying for being a party in the international transaction in question but it is the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income of ₹ 1,01,75,905/- as business income for the purpose of section 80HHC deduction and upholding disallowance of loss on traded items to the tune of ₹ 13,67,412/-; respectively. 4. We come to assessee s latter appeal ITA 343/Ahd/2012 raising sole issue of disallowance of loss on traded items as in its former appeal. It emanates from the case file that the instant appeal suffers from delay of 2038 days in filing. The assessee-appellant has put up a condonation petition inter alia pleading that the instant appeal arises from CIT(A) s order in latter appeal involving proceeding u/s. 143(3) r.w.s 263 of the Act. It highlights the fact to have raised the issue in question of loss on traded goods in earlier appeal arising from section 143(3) proceedings. The assessee accordingly states that it has preferred the instant appeal on coming to know about the legal requirement of institution of separate appeals from the lower appellate order passed in different cases. The Revenue fails to controvert this legal and factual position. It has already come on record that the assessee has raised the very ground in its former appeal. We observe in these facts that there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s. 80HHC of the I. T. Act and has rendered the assessment erroneous and prejudicial to the interests of revenue. Besides,' the following issues have not been examined by the A. O (i) Loss in traded goods (ii) Trial run expenses v/s. trial run product/on and claim for depreciation on such Plant Machinery. (iii) The outcome of show-cause notice issued by the Central Excise Authorities. (iv) Expenditure on energy and fuel in view of expenditure on energy saving devices. 7. The CIT accordingly passed his order dated 22-12-2005 directing the Assessing Officer to frame a de-novo assessment on the above stated aspects. The Assessing Officer finalized consequential proceedings on 24-02-2006 inter alia adding trading loss of ₹ 13,67,412/- and further revised section 80HHC deduction to ₹ 82,57,46,823/-. The total taxable income accordingly stood computed to ₹ 1,09,02,50,712/-. The assessee appears to have preferred two separate appeals No. 56 and 327/2005-06. The CIT(A) has partly accepted both of them vide common order under challenge in these three cases to the extent indicated hereinabove. Both the learned represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h substantive ground assails correctness of the CIT(A) s order deleting oil and petrol expenses disallowance amounting to ₹ 72,804/- made in the course of assessment alleging failure in filing log books along with other contemporary evidence. The Assessing Officer invoked the impugned disallowance @ 20% of the gross claim on estimation basis only. The CIT(A) deletes the same quoting Assessing Officer s failure in pin pointing specific defects in assessee s claim. There is no dispute that the assessing authority has already accepted 80% of the claim sum by not raising any issue therein. We conclude in these facts that the CIT(A) has rightly decided this issue in assessee s favour. This fourth substantive ground is declined. 12. The Revenue s fifth substantive ground seeks revival of PF and ESIC contributions disallowances amounting to ₹ 9,939/-. There is no dispute that assessee deducted the impugned contributions but paid the same before filing its return. The CIT(A) follows hon ble jurisdictional high court decision in case of Alembic Glass Industries Ltd. (2005) 149 Taxmann 15 (Guj) whilst deleting the impugned disallowance. Their lordships in a latter decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order and also went through the submission as made by the A.R. and the judicial findings relied upon by him. In the above referred decisions, it is seen that the A.R. relied on the findings of Hon'ble Bombay High Court in the case of CIT Vs. Nagpur Engineering Co. 245 ITR 806.. wherein according to the A.R., the Hon'ble Court has held that interest income from fixed deposits are eligible profits of the business while computing deduction U/s. 80HHC of the I.T. Act. The A.R. has also mentioned that the Hon'ble Supreme Court has dismissed Special Leave Petition filed by the Department against the judgment and the same has been reported in 244 ITR (St.) 54. In other decisions as delivered by the Hon'ble ITAT Benches Ahmedabad in the cases of Suncity Synthetics Ltd. ITA No.230/Ahd/1998; Inductotherm (India) Ltd. Vs. DCIT, ITA No.3850 (1995) and Pink Star Vs. DCIT 72 ITD 137, it is observed that the Hon'ble ITAT has allowed netting of expenses against the income earned and held that if there is any positive income, the same should be excluded while allowing deduction U/s.80HHC. It is also found that similar view has also been taken by the Hon'ble ITAT B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting formula is to be allowed as per case law CIT vs. Shri Ram Honda Power Equipments (2007) 289 ITR 475 (Del) as well as tribunal s special bench decision in Lalsons Enterprises Vs. DCIT (2004) 82 TTJ 1048 (Del) (SB). Sri Patel fails to point out any exception in the impugned assessment year since we do not see an finding in the lower authorities orders on the crucial aspect as to whether the interest income in question is business income or not. We follow the same course of action as in the earlier assessment year. The Assessing Officer shall decide this issue afresh. The assessee shall be at liberty to raise all its pleas as per law. 16. We come to foreign exchange gain component vis- -vis assessee s claim section 80HHC deduction. There is no quarrel that the assessee has already succeeded before this tribunal in assessment year 2000-01 (supra) on the very issue. Hon ble jurisdictional high court has upheld the same in ITA 1373/2009 by quoting its earlier order in CIT vs. Priyanka Gems in Tax Appeal No. 1468/2006. The Revenue fails to highlight any distinction in the impugned exchange gains involved in these two assessment years in question. We follow consistency to decli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year s facts vis-a-vis those of the impugned assessment year. Nor is there any finding at Assessing Officer s behest that the impugned scrap is in respect of the goods in which the assessee is not dealing with. We find no reason to deviate from our earlier order. This Revenue s argument is rejected. We partly accept the Revenue s arguments on this substantive ground qua section 80HHC deduction issue involving four components of interest, foreign exchange gains, provisions written back and scrap sale; for statistical purposes as indicated in preceding paragraphs. 21. The Revenue s next substantive assails the CIT(A) s order deleting upward transfer pricing adjustment of ₹ 2,96,10,000/- made by the Assessing Officer. We come to relevant facts first. This assessee is a subsidiary of M/s. Aventis CropScience SA and that Bilakhias Holding Pvt. Ltd to the extent of 51 and 49% ; respectively. It manufactures and markets technical grade chemical products. It has the largest synthetic pyrethroid complex in the world. The assessee s range of technical grade products include Allethrin, Deltamethrin and Cypermethrin etc. falls in category of agro chemical/crop protection prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulations. 25. The Transfer Pricing Officer issued further show cause notice as to whether the assessee s domestic sale of B Cisthemic Acid to its domestic enterprise was covered under the supply agreement dated 03-07-1999 or not. The assessee s reply came on 25-11-2004. It sought to explain that B Cisthemic Acid sales fell under Deltamethrin and its intermediates category clause of the agreement. It further stated to have supplied this latter chemical in lieu of Deltamethrin agreement. The Transfer Pricing Officer thereafter served section 133(6) notices to assessee s domestic associate enterprise M/s. Aventis CropScience India raising specific query mainly as to whether its B Cisthemic purchases were as per its overseas associate enterprise behest or not. This entity filed its reply on 24-02-2005. It stated to have purchased the B Cisthemic Acid in question from the assessee since the same satisfied its quantitative and quality requirements and also in view of the fact that earlier import source plant was closing down. This entity nowhere stated that its B Cisthemic purchases were in lieu of Deltamethrin supply to be made by the assessee to its overseas associate enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. We come to the lower appellate proceedings now. The CIT(A) deletes the impugned upward transfer pricing addition as follows:- 16.6 I have perused the remand report received by the Transfer Pricing Officer. The Transfer Pricing Officer has not adversely commented upon the contentions of the A.R. of the appellant company that there is no loss of revenue to the Government of India. 16.7 On the other hand the A.R. of the appellant company had submitted that the transaction between the Indian AE and the appellant company is not an international transaction, but only a domestic transaction. The purchase price paid by the AE will reduce the profits of the Indian AE and at the same time will increase the profits of the appellant company to the same extent. The A.R. of the appellant company also submitted before me that the Indian AE would not have manufactured Deltamethrin if the B-Cisthemic Acid was not purchased from the appellant company. This would have resulted in lower production, lower profits and lower tax payments. The Transfer Pricing Officer has not looked into this aspect of the case in its proper perspective. 16.8 The appellant company is further for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the detailed working furnished by the A.R. of the appellant company. In this manner the A.R. of the appellant company concluded that the transaction as undertaken by the appellant company and its Associated Enterprise has not resulted in a tax benefit to the multinational group as a whole as held by the Transfer Pricing Officer. 16.12 I have considered the facts of the case and the contentions of the parties to the appeal. On a careful consideration of the factual matrix of the case it has been seen that the higher selling price adopted by the appellant company for supply of material to the Indian AE has not resulted in shifting of profits abroad or in the reduction of tax revenue to the Government of India. 28. We have heard both the sides. Learned representatives reiterate their respective pleadings in support of and against the impugned transfer pricing adjustment. There is hardly any dispute that the assessee agreed to supply Deltametrin and its intermediate chemical solutions to the above stated associate enterprise or its designee. This lis however is confined to arms length price determination of 18 tones supplied to the foreign entity. The assessee charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in chapter 10 of the Act. The last clause (f) relevant for any other appropriate method hereinabove contains a specific rule 10AB. This is admittedly not germane to the issue before us. We find that only clause (a) to (e) hereinabove pertaining to CUP and TNMM methods are relevant for the instant adjudication. We find it a fit case to repeat that the assessee had employed TNMM method for charging @ cost + 55% markup i.e. an indirect method for declaring its ALP. The TPO adopted its direct sale price @ 161.2 US $ per kg for making the impugned upward adjustment. We do not find a single observation even in his order rejecting assessee s TNMM method before adopting the agreement price in question under the CUP method. 31. We stay back on Rule 10B(1)(a) at this stage. It is evident that this clause prescribes CUP methods application to determine controlled price of an international transaction by the price charged or paid for property transfer or services provided in a comparable uncontrolled transaction; or a number of transaction, as identified. The same forms a price charged or paid in relation to property or services as the basis of ALP transaction. We referred to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) r.w.s. 92C and 92C(4) proviso along with rules discussed hereinabove at length. There is hardly any dispute that this chapter and the rules notified thereunder prescribe that an arms length price is not the price an assessee is charging or paying for being a party in the international transaction in question but it is the price i.e. to be paid or charged in such a comparable controlled transaction in comparison to a comparable un-controlled transaction. We repeat that the TPO has not kept in mind this fine distinction. We accordingly reverse his action on this sole legal principle. Needless to say, the CIT(A) has already deleted the impugned adjustment. We find no reason to interfere in the lower appellate order albeit on a different score as enumerated hereinabove. This Revenue s ground is declined accordingly. 35. The Revenue s next substantive ground challenges CIT(A) s order holding that excise duty and sales tax are not to be included in total turnover for computing section 80HHC deduction. This issue admittedly emanated from CIT's section 263 order dated 22-12-2005 and Assessing Officer s consequential assessment framed thereafter. We find that a co-ordinate b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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